Calpine, Mirant Bonds Fall as Asset Sale Glut to Damp Prices
By Jennifer Ryan
quote.bloomberg.com
New York, Feb. 20 (Bloomberg) -- Calpine Corp. and Mirant Corp. bond prices are falling on investor concern that too many electricity producers are selling assets to raise cash and reduce debt, creating a glut likely to reduce prices.
AES Corp. said it plans to sell as much as $1.5 billion in power plants and equipment as the Arlington, Virginia-based electricity producer tries to avoid a cash crunch after losses in Latin America. Williams Cos. and El Paso Corp. are among rivals offering billions of dollars of power plants, pipelines and utilities for sale to raise cash and boost credit ratings.
``You don't know who the buyer is going to be, and the prices probably aren't going to be what you hoped for,'' said Curt Mitchell, who helps manage $21 billion of fixed income assets at Loomis Sayles & Co. ``Now it's a lot of promises, but not a lot of cash coming in the door.''
Calpine's 175 million euros ($153 million) of 8 3/8 percent bonds maturing in 2008 were recently yielding about 13.49 percent, up from 9.35 percent on Jan. 14, according to Merrill Lynch & Co. prices on Bloomberg. The spread over six-year German government debt rose to 8.75 percentage points from 4.85 percentage points on Jan. 14.
In the U.S., the premium on Calpine's debt over U.S. Treasuries widened to 7.58 percentage points yesterday from 4.08 points on Dec. 3, the day after Enron Corp. filed for the largest- ever bankruptcy. At the same time Mirant's spread doubled, to 4.42 percentage points from 2.31 basis points.
The spread on AES's 8 7/8 percent notes maturing in 2011 has widened to 7.56 percentage points, according to Bloomberg data.
Debt Reduction
The pledges to raise money through asset sales come as Moody's Investors Service threatens ratings downgrades to energy companies that have too much debt to complete their growth plans. Moody's has said an energy company's debt shouldn't outweigh its equity, if the business holds an investment-grade rating.
El Paso announced its debt reduction plans the week after Enron's filing. About two weeks later, Calpine and power producer and energy trader Dynegy Inc. had their credit ratings cut on concerns about their high debt levels. Dynegy, which scuttled a planned purchase of Enron after Enron's credit ratings fell to junk, has since made plans to sell assets and cut costs.
Days after the Calpine and Dynegy downgrades, Mirant had its credit rating cut to junk by Moody's after it didn't release quickly enough details of its plans to reduce debt, while rival Williams had its ratings affirmed. Moody's said Williams' plans eased its concerns.
Williams and El Paso have investment-grade credit ratings, while AES and Calpine are rated junk by both Moody's and Standard & Poor's. Mirant has investment grade ratings from S&P.
Calpine is negotiating with three companies to find an investment grade partner for its trading arm, Calpine Energy Services, said Chief Executive Officer Peter Cartwright. It's had to boost trading collateral following Enron's collapse.
Calpine's and Mirant's bond prices have been hurt because they're in the same industry as AES's. AES has global operations and exposure to Argentina and Venezuela, while the others operate domestically. AES's profit last quarter fell 80 percent on losses from Latin America and the devaluation of the Argentine peso.
The American companies' bonds may recover once investors realize the borrowers don't share AES's problems in Latin America, said Mitchell at Loomis Sayles.
``When one large player in industry gets hurt, it does have a tendency to move other bonds in sympathy,'' he said. ``The other bonds have a different fundamental character.''
``It's not a long-term viability issue because of a power shortage in the U.S.,'' he said. ``These companies are in a valuable niche.'' |
